The voting for the Arbitrum "staking" proposal has started. Is ARB going to be issued more?

Author: OdailyNews

On the evening of October 30, voting began on the proposal put forward by PlutusDAO to launch the staking feature for the Arbitrum governance token ARB. The proposal set five options: "100 million ARB incentive," "125 million ARB incentive," "150 million ARB incentive," "175 million ARB incentive," and "no incentive."

Currently, the option suggested by PlutusDAO, "175 million ARB incentive," has the highest vote rate, with a support rate of 87.56%.

ARB Issuance? Just a misunderstanding!

Odaily Planet Daily found that there are significant discrepancies between the rumors within many communities regarding PlutusDAO's proposal and the actual situation ------ some Arbitrum community users believe that the ARB tokens used for staking incentives come from Arbitrum DAO's annual 2% inflation minting rights, thus interpreting it as ARB tokens will see an increase in issuance. However, this is not the case.

Odaily Planet Daily checked the historical proposals of PlutusDAO and found that this misunderstanding arose because some users' impressions of the proposal were still stuck in the initial version from September. In fact, PlutusDAO made extensive modifications to the proposal content in October.

As shown in the image below, the initial proposal in the September version was described as follows:

• "Arbitrum DAO has the right to mint 2% of the total supply of ARB each year as inflation and use it in a manner deemed appropriate by the DAO. This function has existed in the ARB token contract, and the first optional minting time is March 15, 2024, as this minting function can only be called once a year. PlutusDAO suggests minting an additional 1.75% of the total supply of ARB and distributing it as staking incentives within one year."

In the final version that initiated voting in October, the proposal description was modified to:

• "The funds of Arbitrum DAO are growing rapidly, but this growth is currently not shared with ARB token holders. The treasury address of Arbitrum DAO holds 3.54 billion ARB tokens, and the recently unclaimed 64 million ARB airdrop has also been transferred to the treasury address. Arbitrum DAO's funds are very sufficient, and all surplus income belongs to the DAO, including Layer 2 sequencer income."

• "We believe ARB needs a staking mechanism… and suggest requesting ARB reserves of 1.75%, 1.5%, 1.25%, or 1% of the supply from Arbitrum DAO's treasury as an incentive budget, to be distributed to ARB stakers within December."

By comparing the two versions of the proposal, it can be seen that the source of staking incentives has changed from "inflation minting" to "treasury payment," so there will not be any new ARB issuance ------ this does not mean that Arbitrum DAO will not mint inflation for other reasons; the two matters are completely independent.

How will the actual circulation of ARB change?

Combining some calculations from PlutusDAO, we can roughly estimate the changes in ARB circulation if the proposal is passed.

In the short term, it is foreseeable that a large number of ARB holders will consider staking for incentive returns, which may effectively reduce the actual circulation of ARB.

Depending on the specific incentive tiers, the expected returns corresponding to different staking rates are as follows. Odaily Planet Daily predicts that if the final governance incentive tier is 1.75%, the ARB staking rate will likely exceed 50% (corresponding to an annualized return of 27.45%), which means that the circulating supply of ARB could be reduced by more than 50% in the short term.

In the medium term (within one year), as the incentive shares are continuously released, the actual circulation of ARB will theoretically see an increase. However, PlutusDAO has designed a "soft and hard" lock-up control mechanism to hedge against this growth. Specifically, stakers can choose different staking periods, corresponding to different levels of incentive coefficients; the longer the staking time, the higher the yield; at the same time, early withdrawal will face a penalty of up to 60% of the principal (the penalty intensity is linearly related to the remaining duration).

In the long term (one year), since PlutusDAO's proposal only involves a one-year staking activity, the circulation supply of ARB will inevitably increase after the staking ends (current circulation + incentive circulation). However, this can also be addressed by extending the proposal; PlutusDAO hopes to use the first year's staking period as an experiment, and whether to continue in the future will depend on the situation.

Upgrade of ARB's Utility

Looking at the content of PlutusDAO's proposal, it essentially grants ARB a new utility based on governance ------ sharing the revenue within Arbitrum DAO.

According to ARB's token economic model, the usage of funds reserves within Arbitrum DAO should be governed by the community (i.e., ARB holders), which is why the current proposal has a relatively high support rate from the community.

However, it is important to clarify that this round of voting on Snapshot is merely a public opinion survey conducted by Arbitrum DAO regarding this proposal. The subsequent actual on-chain voting will still need to be completed on Tally, with the specific timeline as follows.

• Forum posting to solicit opinions and feedback (completed);

• Heat check and public opinion survey (ongoing, for 1 week);

• Official initiation of AIP, calling for votes (to be conducted, for 3 days);

• Formal on-chain voting on Tally (to be conducted, for 14 days);

• Deployment and execution.

This also means that even if this round of public opinion survey passes, the proposal will take at least another half a month to be implemented, and whether it can pass the formal on-chain voting on Tally will be the biggest test the proposal faces.